Mothercare reveals challenges as second half proves tough

Mothercare finally released its annual results on Thursday afternoon after they had failed to materialise early Thursday morning as expected. But there's no denying that they were worth waiting for with the numbers illustrating the challenges the firm faces.

MothercareBut perhaps the most intriguing element of the results was the fact that they were delivered on the part of CEO David Wood, with the much-talked-about return of Mark Newton-Jones to that post clearly not yet in place.

So what did Mothercare tell us for the 52 weeks to March 24? The company said that it had a positive first six months but a “very difficult” second half in the UK with “sales impacted by a softening of store footfall and [the] margin impacted by a higher level of discounting to stimulate sales.”

That said, e-sales growth continued and as much as 43% of UK sales are now internet-based (including customers going online themselves, usually on a smartphone, and sales via iPads in-store). And despite Mothercare's troubles, in this respect alone it is something of a leader in UK retail. Very few businesses whose origins are in physical stores enjoy that high proportion of online sales.

The company also said that international markets were challenging but it saw “some recovery in the Middle East towards the end of the year and expansion of online continues.”

THE NUMBERS

So, now to the figures. Group adjusted profit before tax was £2.3 million, in line with the guidance given in January. But it saw a “significant” statutory loss before tax of £72.8 million due to “restructuring, closure costs, store asset impairments and onerous leases.”

It saw an almost 5% fall in total sales at £1.163 billion when turnover from franchise partners was included, or a 1.9% fall to £654.5 million when looking only at sales directly attributable to the company.

Looking at the figures in more detail, UK like-for-like sales fell by 1.3% and total UK sales were £437.6 million, a drop of 4.8%. The adjusted UK operating loss was £19.8 million, down sharply from the loss of £4.4 million of the prior year. The UK pre-tax loss after adjusted items was £79.4 million, so much worse than the £9.7 million loss previously.

International like-for-like sales fell 5.9% and international retail sales dropped 5.8% on a currency-neutral basis, or 5% on a reported basis. Total international revenue was down 4.9% at £725.3 million. But the international operation was more profitable with a 4.5% fall in operating profits to £33.6 million and a 10.9% rise in pre-tax adjusted profits to reach £28.4 million.

The company had some good news on product and said that in Clothing and Footwear, ranges such as My K by Myleene Klass, Little Bird by Jools Oliver, and Peter Rabbit, “continued to resonate well with customers.”

VIEW FROM THE TOP

CEO David Wood, who will reportedly become group managing director when Mark Newton-Jones returns, said: "After continued momentum in the first half, the business saw a softening in the UK market from the end of September onwards with store sales down for much of the second half. The business has modernised significantly over recent years, but we expect the changing dynamics and challenges in the retail sector to continue, so we need to move faster with the execution of our transformation plans."

That’s very clear given that the problems in the second half were seen both at the company’s stores and its website, with slower spend overall at a time when it might have been hoped that online spend would have taken up the slack.

But Wood said that the ability of the company to at least deliver a small adjusted group profit “was a result of a disciplined approach to cash management with a particular focus on controlling stock levels, together with stringent controls over capital expenditure.”

He also said “it's clear that we need to move faster with the delivery of the transformation plans in order to continue adapting to evolving shopping habits across the world.”

The elements of the transformation strategy where progress was made during the year included more focus on the core markets of maternity, newborn, baby and toddler up to pre-school.

The group trades from 1,268 stores in 48 countries across the world. Some 137 stores are in the UK (for now, as 50 are set to close under its planned CVA) and 1,131 are operated by its international partners.